List and discuss four possible limitations of merit pay programs

What will be an ideal response?

Answer: An answer should contain any of the following elements:
1) The failure to differentiate among performers: When there is no clear difference in actual job performance, companies may provide alternative rewards such as higher discounts on the company's product or service to complement merit pay increase.
2) Poor performance measures: Job analysis can be used to create objective performance measures.
3) Supervisors' biased ratings of employee job performance: Major types of rater errors include bias errors, contrast errors, errors of central tendency, and errors of leniency or strictness. HR departments can help raters to minimize errors by choosing better rating systems and recognizing common errors. For instance, to avoid errors of central tendency, HR professionals should require justification for rating at every level of the scale, not just the extremes.
4) Lack of open communication between management and employees: An employee develops reasonable expectations when there is open communication between management and employees.